Pupils at Dorothy Stringer High School in Brighton are on their lunch break – but the place is alive with sporting action. In the sports hall a group of boys are playing five-a-side football, while in a nearby studio girls are perfecting a dance routine. Outside in the playground, a former pupil, Tom Betts, 17, has returned with news that he has been offered a goalkeeping trial by Brighton and Hove Albion. "It is thanks to this school and the people here," he says as he prepares to take a team of 11-year-olds to a tournament on the other side of town.

Dorothy Stringer has been a specialist sports college since 2002 – and the office of headteacher Trevor Allen is stuffed full of awards proving it also has a strong academic record. It has improved its GCSE performances for 10 years running and is judged "outstanding" by Ofsted. Allen believes sporting and academic excellence feed off each other.

With 1,650 pupils of its own, Dorothy Stringer is also the "hub" for Brighton's so-called "schools sports partnership" (SSP), which means it manages £320,000 a year of central government funding that benefits tens of thousands of children across the area. With the money, the man in charge of the SSP, Andy Marchant, organises "sport for all" in 72 other schools in and around Brighton, providing expert PE teachers and sports coaches for all ages, from those in infant schools to sixth-form colleges. He and his team run after-school clubs, inter-schools competitions and nationally acclaimed dance and sports festivals. But not for much longer.

In the SSP's office, Marchant told 27-year-old Emma Greenough, a school sport co-ordinator, that he could no longer afford to keep her in the post because of government cuts. Last month, out of the blue and without any consultation, schools secretary Michael Gove axed all funding for the Brighton SSP and the 449 others that together serve every school in England: £162m of central government money for sport in state schools went in an instant. "The Olympic legacy down the plughole," says Allen.

Greenough says she will be "devastated" to leave at the end of term because she adores her job. "I think it is outrageous what the government has done. It is tragic for kids in this country. This was about sport for everyone, for all children. Now you are just going to be left with two-tier sports in this country again. It'll be sport for children whose parents can afford it."

When the last Conservative government left office in 1997, only one in four children at state schools was given the statutory minimum of two hours' PE per week. The progress under Labour was slow at times, and patchy, but by 2010 the figure had risen to 95%.

Marchant has spent his professional life building up school sport in Brighton – particularly for those who had had no previous involvement and who were from homes where, without active intervention, they would have had none. He cannot believe what Gove has done – an approach that he says runs contrary to the coalition's vision of a "big society" that draws on the volunteer spirit and entrusts power to the professionals. "It is heartbreaking to see a country do this to its children. It is despicable with just months to go before the Olympics."

If Marchant feels "betrayed" by government, so too does the Youth Sport Trust, led by Baroness Sue Campbell, a well-respected cross-bench peer who created the model of SSPs, and is their national mastermind.

Gove did not inform Campbell, the trust's chief executive and the chairman of UK Sport, that anything was afoot until he wrote to her on 20 October saying the existing network of SSPs was "neither affordable nor likely to be the best way to help schools achieve their potential in improving competitive sport". Schools, he said, would from now on be able to decide their own sports policies, free from a "centralised government blueprint". But also free of the £162m of funding.

Instead of this funding, Gove said he would set up an annual "Olympic-style school sport competition" in the run-up to 2012. Campbell was stunned and wrote to Gove saying she was "deeply disappointed" and that the SSP network was the envy of other countries. She felt its work and achievements had been "poorly portrayed to you". Sources close to the network say Gove has never visited an SSP nor shown any interest in their work and suspect he axed funding for "ideological reasons" seeing the trust as just another Labour quango.

Allen described the decision as "catastrophic, not just for sport in this country but for our children's health. Gove is wrong, because to organise and develop sport you need structures such as the Schools' Sports Partnership. I would be delighted to see him at this school and see what it does for young people."

A government source said Gove's aim is to "refocus sport on competition and to free up schools from the bureaucracy created by centrally driven programmes and targets". As part of the Gove masterplan, annual assessments of how much sport is being delivered by schools are being scrapped, so that no records will be available – a move Labour's Andy Burnham said looked like an attempt to "cover up" the inevitable decline.

Gove's aides say the Olympics event in schools will be more than just a one-off. "This is about building enthusiasm and excitement for the 2012 Games, starting in the classroom. We will work with teachers to focus school sport on competition and the Olympics as we build to the school event in 2012."

As he watched seven teams of 11-year-olds compete fiercely in a five-a-side contest on the outskirts of Brighton, Marchant said he was completely mystified by Gove's claim that there was a lack of competitive sport in schools. "So this is not competition?" he said. He believes that, after three decades working in the field, the gap between the hours of sport played by state and private school children in the area is narrower than ever.

At Carden primary school in north Brighton, headteacher Catherine Scott said children with behavioural difficulties from deprived homes had been transformed, largely because of the expert sports tuition on offer. "It has actually turned them around. It is not all about sitting behind desks," she said. "This sort of thing is affecting lives. It is as important as that. And it is also vital for the health of these children."

In Brighton, as elsewhere, opposition to Gove's move is growing as its effects sink in. Many teachers believe it will be a stain on the 2012 Olympics. A Facebook Page "Save School Sports Partnerships" has 14,000 followers. Petitions are being prepared.

No one is giving up. Darren Hambrook, a schools sports co-ordinator managing sport in 15 schools under Marchant, said: "I am still looking at things positively because I just cannot believe that anyone with any sense could allow what we have created to go."